>I really like an idea of closed equity curve. Unfortunately, even if I hire a person to explain my broker the idea in poetic/philosophical English, the bastard(broker) will liquidate my positions by open equity curve. Period.
At which point the drawdowns become realiized and hence becomes part of the closed equity curve. You don’t need an open equity curve for that. It only paints a misleading picture.
>C2 lists DD per position(on track record) and per portfolio(global stats). What’s wrong with that?
One small problem: they don’t exist unless they are realized, i.e., when the position is exited and all the positions in the portfolio are exited.
(sigh)
At which point the drawdowns become realiized
Margin call. Period. If you have better broker, I’m with you on shit when unclosed trades mean nothing. Give me the broker name!
Eu
>Margin call. Period.
(sigh)
That is implicitly understood, ofcourse, but did you know that there are no margin calls in forex (all positions are immediately closed - the way it should be).
Note that the thread starter, Domenic, did not suggest to replace the open equity curve with the closed curve, only to add it as a second curve.
I’m not interested in adding the closed equity curve, but I see not much harm in it either. (Except if the next step is that people will ask that all advanced stats should be computed for the closed curve too.)
This is different for the drawdowns. There the suggestion was to replace the current formula, and I don’t view that as an improvement. To have two kind of drawdowns would be confusing, however.
The principal reason is that considering closed trades only is an unnecessary loss of information, that will make any risk estimate less reliable. The purpose of these estimates is to estimate the risk of ruin before it happens, not after the fact.
That is implicitly understood, ofcourse, but did you know that there are no margin calls in forex (all positions are immediately closed - the way it should be)
(sigh) It has a name “forced liquidation” in forex as well. Well, give me your broker name in forex. The broker that will handle closed equity curve. Broker’s name, pls!
You are ignoring the fact that the current way the equity curve is plotted and the drawdowns calculated is baseless (not grounded on reality), arbitrary (neither true or false until losses are realized at which point they are validated or true) and capricious (changing so frequently so as to be practically useless in evaluating a system/method)…
only to add it as a second curve.
Closed equity curve, it’s my dream, my childish dream that has no real value lol Until you’ll show me a broker who supports it I prefer to be an idiot.
Eu
>Well, give me your broker name in forex. The broker that will handle closed equity curve. Broker’s name, pls!
(sigh) Any forex broker…
>Closed equity curve, it’s my dream, my childish dream that has no real value lol Until you’ll show me a broker who supports it I prefer to be an idiot.
(sigh)
Since individual trades have different outcomes, consisting of profits that result from the entry/exit strategy and losses that result from exits, a history of closed-out trades contains all the information needed to analyze the system’s performance and develop a position sizing
algorithm. We can calculate the equity after each trade, as well drawdown, peak equity, maximum drawdown, net profit, return on equity, expectancy score, etc.; a closed-equity graph is the best way to represent the performance of a system/method as the drawdowns are based on the objective evidence of real-ized (valid-ated) losses.
Also, since we know that the history of trades will not repeat, we can assume that the future will yield a series of trades with similar characteristics in terms of profit, loss, percent profitable, and so on. In other words, if we have confidence in the robustness of our strategy we can be confident that a future series of trades will be statistically similar to past history and that is vital information for investors.
Any forex broker…
Name of the broker please.
(sigh)
Any forex broker…
Ok lets do it senario by senario.
1. If open equity never falls below closed equity then TRUE DD is zero, although c2 may list a non-zero DD (FALSE). If your broker closes your position/s based on this senario…suggest u look for another broker.
2.If open equity never rises above the closed equity then this is a TRUE non-zero DD (open-closed) and depending on the DD amount, your broker may close out positions…If your broker does not close out positions then stay with broker until your capital along with broker mysteriously disappears.
3. If open equity falls below closed equity then the DD is as per 2 even if the open equity (assuming position is not closed in 2) eventually rises above the closed equity.
4. If open equity is above closed equity but then falls below closed equity then the DD is as per 2.
Tried to explain as simple as possible and cover all possible senarios.
How do you display all 4 senarios ?..Show both open and closed equity curves.
Jules using your example…
open: 250,200,150,100,050,225
close:250,250,250,250,250,225
DD: 0,-50,-100,-150,-200,0 hence max DD is -200 which still shows max risk etc.
now for this example:
open: 300,260,310,400,350,300,
close: 250,250,250,250,250,300
DD is zero yet c2 will show DD as probably -100 which is incorrect.
or this example:
open: 300,240,310,400,350,300,
close: 250,250,250,250,250,300
DD is -10 but c2 will show DD as -100 which is incorrect.
In your four points and the examples below them, you declare a DD to be “true” if it is based on the closed equity, and “false” and “incorrect” if it is based on open equity. However, you provide no reasons as to why that should be the definition. For example, in your last example you say
"DD is -10 but c2 will show DD as -100 which is incorrect."
but I can just as easily say:
DD is -100 and you say -10 which is incorrect.
Why is one definition better than the other? Well, we can argue infinitely about what the word should mean, but I see that as a rather arbitrary (dis)agreement about the meaning of a word. The more relevant question is which concept is the most useful in assessing risk. Since the closed equity curve is no more than a subset of the open equity curve in all your examples, I don’t see the advantage of it. Considering only closed drawdowns means that you are actually throwing away information. Usually that makes the resulting statistics less reliable.
For example, your last example was
open: 300,240,310,400,350,300,
close: 250,250,250,250,250,300
This closed curve can as well be the result of this open curve:
open2: 250, 100, 500, 1, 100, 300
or of this one:
open3: 250,250,250,250,250,300
I think that open2 has considerably more risk than your example, and that open3 has considerably less risk, but this information is lost when you consider only drawdowns on basis of closed equity.
Do you agree that open2 has more risk than the system in your example, and that open3 has less risk?
What’s the point of asking me that question if I actually agree with you? But since you ask: I will try to find one for you if you find a broker that displays the Realism Factor. The point of this is that C2 is not obligated to show only those things that a broker displays.
>Do you agree that open2 has more risk than the system in your example, and that open3 has less risk?
The risk is only in your imagination. In the absence of realized losses, there is only imaginary risk, not real risk…
Of course open3 has more risk.
My concern is that if a trade never goes negative, c2 will still show a non-zero DD, just because the trade was not closed at its max profit reached, which implies that systems with pre-determined targets rate better in DD as opposed to systems that let profits run. Assuming everything is equal for the two systems.
For example:
system1: same entry and takes out 50pips at its max by virtue of target set.
system2: same entry but lets profit run to say 300p and decides wait for some retrace before deciding to close at 250p profit.
system1 will show 0 DD
system2 will show -50pip DD as %
system2 is by far superior but is unfairly penalised in terms of DD. Goes against "let profits run", i guess what i am trying to point out.
Sorry meant open3 has less risk.
This is perfect. Most of my methods are unfarily penalized because they let profits run (no stops used), also evidenced by the highest P/L per unit figure among any systems at C2 but the combined equity curve paints a misleading and inaccurate picture of my methods and some vegetables take advantage of this fact and castigate it…
At C2, every moral requirement of intelligence is relentlessly attacked.Rationality is castigated as heartless, intellectuality as arid, egoism as exploitative, independence as antisocial, integrity as rigid, honesty as impractical, justice as cruel, productivity as materialistic. The sum of this approach - the crown of the creed of death worship - is the tenet that pride itself is evil and humility is the good.
If people believe that they/their system/method should not aspire to be perfect, that self-esteem is a delusion and virtue consists in recognizing how vicious (open drawdowns) they/their system/method is , then true virtue is impossible to them, and the trap is closed on the human race. The better men/systems/methods give up the exacting ambition to be good, and the rest give up any hope of reform. The result is a mass manufacture of despair. The despair takes the form of species-wide/system-wide self-abasement and a centuries-long rule of
immorality. Only a corrupt theory of concepts and hence morality can produce such a rule with the resultant mass despair and destruction in its wake…
Jules…
You say
"However, you provide no reasons as to why that should be the definition."
In this example:
open: 300,240,310,400,350,300
close: 250,250,250,250,250,300
I said "DD is -10 but c2 will show DD as -100 which is incorrect"
I reasoned by way of the example that the -10 (240-250) DD is referenced against the closed equity or the value of account prior to the trade being opened (ie 250).
I also reason that DD should measure the risk/loss imposed on the closed equity/account, not the risk/loss imposed to its own positive profits.
Now examples
open2: 250, 100, 500, 1, 100, 300
close: 250,250,250,250,250,300
DD : 0,-150,0,-249,-150,0
hence max DD is -249
open3: 250,250,250,250,250,300
close: 250,250,250,250,250,300
DD : 0,0,0,0,0,0
hence max DD=0…hence less riskier than open2…and ?
again i repeat…
My concern is that if a trade never goes negative, c2 will still show a non-zero DD, just because the trade was not closed at its max profit reached, which implies that systems with pre-determined targets rate better in DD as opposed to systems that let profits run. Assuming everything else is equal for the two systems.
This DD is errornous in systems that “let profits run” as a consequence. Hence should venders design systems to exit at a pre-determined target? Well if you can’t beat them join them.
At least I’ll have two systems,
1.private system to let profits run.
2.c2 system to meet their customised specifications.
Jules, my final post to illustrate my point of view…
Now using your example of open3 to measure risk…
assume same stop and position size…
System #3.
open3: 250,250,250,250,250,300
close: 250,250,250,250,250,300
DD : 0,0,0,0,0,0
hence max DD=0…and c2 will show 0
System #4.
open4: 250,300,350,300,450,400
close: 250,250,250,250,250,400
DD : 0,0,0,0,0,0
Hence max DD=0…but c2 will show -50…
DD -50 implies loss of -50 but was the trade ever in a losing position?
Was #4 ever in a losing position ?
Granted the #4 would have been in the trade longer…but thats the price for "letting profits run".
Which system is more superior #3 or #4.
Personally I choose #4 for following reasons:-
a)never in loss as per #3
b)greater profit
Thus if you pick #3 then our strategies/preference for risk/reward/DD differ, but thats ok…Difference is what makes a market in the first place.
To some degree c2 does not encourage "letting profits run" by virtue of its max DD calc method, which is disappointing for both c2 and its subscribers in terms of delivering more quality systems.
Thanks for the discussion and purely constructive critisim intended.
